Umali vs.

Estanislao May 29, 1992 Facts: Congress enacted Republic Act 7167 amending the NIRC (adjusting the basic and additional exemptions allowable to individuals for income tax purposes to the poverty threshold level). The said Act was signed and approved by the President on 19 December 1991 and published on 14 January 1992 in "Malaya" a newspaper of general circulation. On 26 December 1991, the CIR promulgated Revenue Regulations No. 1-92 stating that the regulations shall take effect on compensation income from January 1, 1992. Petitioners filed a petition for mandamus to compel the CIR to implement RA 7167 in regard to income earned or received in 1991, and prohibition to enjoin the CIR from implementing the revenue regulation. Issue: Assuming that Rep. Act 7167 took effect on 30 January 1992 (15 days after its publication in Malaya), whether or not the said law nonetheless covers or applies to compensation income earned or received during calendar year 1991. Ratio: The Court is of the considered view that Rep. Act 7167 should cover or extend to compensation income earned or received during calendar year 1991. Sec. 29, par. [L], Item No. 4 of the National Internal Revenue Code, as amended, provides: Upon the recommendation of the Secretary of Finance, the President shall automatically adjust not more often than once every three years, the personal and additional exemptions taking into account, among others, the movement in consumer price indices, levels of minimum wages, and bare subsistence levels. The exemptions were last adjusted in 1986. The president could have adjusted it in 1989 but did not do so. The poverty threshold level refers to the level at the time Rep. Act 7167 was enacted by Congress. The Act is a social legislation intended to alleviate in part the present economic plight of the lower income taxpayers. Rep. Act 7167 says that the increased personal exemptions shall be available after the law shall have become effective. These exemptions are available upon the filing of personal income tax returns, done not later than the 15th day of April after the end of a calendar year. Thus, under Rep. Act 7167, which became effective, on 30 January 1992, the increased exemptions are literally available on or before 15 April 1992 [though not before 30 January 1992]. But these increased exemptions can be available on 15 April 1992 only in respect of compensation income earned or received during the calendar year 1991. The personal exemptions as increased by Rep. Act 7167 are not available in respect of compensation income received during the 1990 calendar year; the tax due in respect of said income had already accrued, and been presumably paid (The law does not state retroactive application). The personal exemptions as increased by Rep. Act 7167 cannot be regarded as available as to compensation income received during 1992 because it would in effect postpone the availability of the increased exemptions to 1 January-15 April 1993. The implementing regulations collide with Section 3 of Rep. Act 7167 which states that the statute "shall take effect upon its approval. The revenue regulation should take effect on compensation income earned or received from 1 January 1991. Since this decision is promulgated after 15 April 1992, those taxpayers who have already paid are entitled to refunds or credits.

CIR vs. YMCA October 14, 1998 Facts: YMCA is a non-stock, non-profit institution, which conducts various programs and activities that are beneficial to the public, especially the young people, pursuant to its religious, educational and charitable objectives. In 1980, YMCA earned an income of P676,829.80 from leasing out a portion of its premises to small shop owners, like restaurants and canteen operators, and P44,259.00 from parking fees collected from non-members. On July 2, 1984, the commissioner of internal revenue (CIR) issued an assessment to YMCA, in the total amount of P415,615.01 including surcharge and interest, for deficiency income tax, deficiency expanded withholding taxes on rentals and professional fees and deficiency withholding tax on wages. YMCA argued that he leasing of facilities to small shop owners, to restaurant and canteen operators and the operation of the parking lot are reasonably incidental to and reasonably necessary for the accomplishment of their objectives. Issue: Whether or not the income of YMCA from rentals of small shops and parking fees is exempt from taxation Ratio: The income from rentals is not exempt.
SEC. 27. Exemptions from tax on corporations. -- The following organizations shall not be taxed under this Title in respect to income received by them as such (g) Civic league or organization not organized for profit but operated exclusively for the promotion of social welfare; (h) Club organized and operated exclusively for pleasure, recreation, and other nonprofitable purposes, no part of the net income of which inures to the benefit of any private stockholder or member; Notwithstanding the provision in the preceding paragraphs, the income of whatever kind and character of the foregoing organization from any of their properties, real or personal, or from any of their activities conducted for profit, regardless of the disposition made of such income, shall be subject to the tax imposed under this Code. (as amended by Pres. Decree No. 1457)

The exemption claimed by the YMCA is expressly disallowed by the very wording of the last paragraph of Section 27 of the NIRC which mandates that the income of exempt organizations (such as the YMCA) from any of their properties, real or personal, be subject to the imposed by the same Code. Invoking not only the NIRC but also the Constitution, YMCA submits that Article VI, Section 28 of par. 3 of the 1987 Constitution, exempts charitable institutions from the payment not only of property taxes but also of income tax from any source. Authorities on taxation stated that the tax exemption covers property taxes only. What is exempted is not the institution itself; those exempted from real estate taxes are lands, buildings and improvements actually, directly and exclusively used for religious, charitable or educational purposes. Private respondent also invokes Article XIV, Section 4, par. 3 of the Charter, claiming that the YMCA is a non-stock, non-profit educational institution whose revenues and assets are used actually, directly and exclusively for educational purposes so it is exempt from taxes on its properties and income. We reiterate that private respondent is exempt from the payment of property tax, but not

income tax on the rentals from its property. The bare allegation alone that it is a non-stock, nonprofit educational institution is insufficient to justify its exemption from the payment of income tax. Laws allowing tax exemption are construed strictissimi juris. Hence, for the YMCA to be granted the exemption it claims under the aforecited provision, it must prove with substantial evidence that (1) it falls under the classification non-stock, non-profit educational institution; and (2) the income it seeks to be exempted from taxation is used actually, directly, and exclusively for educational purposes. YMCA is not an educational institution under Article XIV, Section 4, par.3 of the Constitution. The term educational institution refers to schools or formal education. The Court has examined the Amended Articles of Incorporation and By-Laws of the YMCA, but found nothing in them that even hints that it is a school or an educational institution. Moreover, without conceding that YMCA is an educational institution, the Court also notes that it did not submit proof of the proportionate amount of the subject income that was actually, directly and exclusively used for educational purposes. Article XIII, Section 5 of the YMCA by-laws, which formed part of the evidence submitted, is patently insufficient, since the same merely signified that [t]he net income derived from the rentals of the commercial buildings shall be apportioned to the Federation and Member Associations as the National Board may decide. There is no basis for granting the YMCA exemption from income tax under the constitutional provision invoked.